Hosting Business - Planning Your Web Hosting Business

Hosting Business - Planning Your Web Hosting Business

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Just as you wouldn’t travel in territory you don’t know without a map, you should not proceed in business without a plan. That’s as true for the web hosting business as it is for any other. In this article, the first of two parts, I will mention the six important parts of any business plan, and discuss three of them.

Many people who get into the web hosting business figure that it’s just a numbers game. While it is important to get the numbers right, those figures that add up to a profitable business on paper may be hiding some mistaken assumptions. Let’s look at someone who plans to sell web hosting for $5 per month. He does the math for his business at 300 customers. Here is what it looks like:

Gross income=$1280 (300 times $5 minus credit card fees)

Server cost=$100

Control panel cost=$100

Advertising=$300

Customer support=$350

Total Costs=$850

Net income (profit) =$430

Net income per customer = $1.43

That might be a nice projection, but there are a lot of things it doesn’t take into account. How is he going to manage until he actually gets those 300 customers, hmmm? Until then, he’ll have to cover his costs himself. Likewise, how did he figure that his advertising cost would be $300 per month? That number can’t just be drawn out of a hat. How will he advertise? How well can he close sales?

If you want to go into the web hosting business, you need to treat it seriously, just as you would if you were starting any other business venture. A good place to start is by taking a job with another web hosting company to learn the ropes. Another way people start is by becoming a reseller web host, but even that is a serious business and should not be treated casually.

However you choose to start, you’re not going to be able to escape the responsibility of doing your research. That means reading books, asking questions on forums, checking out the industry online and at conferences. There are certain questions you need to be able to answer before you turn on your first server, and certain issues you need to at least be thinking about. In other words, you need a business plan.

If you are just starting out, and the business plan is chiefly for your own edification, you may be able to get away with just a few pages. But you should be thinking of the future, and what you plan to do with your business five years down the line. There are plenty of books that describe how to write a business plan; I’m going to cover the most generic elements of a business plan here, with a focus on web hosting. Even if you don’t see these elements as applying to your business—yet—you can benefit from reading all the sections, as they will get you thinking about the areas of your business you will probably need to address sooner or later.

Key Parts of a Business Plan

A good generic business plan features six key parts: executive summary, the enterprise, the market, operations, organization, and key risks/timeline. Not every business plan will cover all of these parts in the same amount of detail, and in the same business plan, these will vary significantly in length. Your own business plan will change as time goes on, you acquire more information, and your own needs (and those of your customers) change.

If your business plan is like a nonfiction book, the executive summary is a comprehensive introduction. As with most introductions, it should be written last, and for the same reason. You need the information contained in the rest of the work to give an introduction that truly covers the subject.

An executive summary tells the reader what the company is all about, who the founders are, and what they see the business doing—the vision for the company, if you will. It should also include a statement about the market opportunity: why now is the right time, and your company is the right company, to take advantage of the current situation. You’ll see these points repeated in other parts of the business plan.

The part of the business plan that covers the enterprise describes your company’s product or service, and how it holds an advantage in the marketplace. Obviously, for a web hosting firm, the basic service is hosting websites, but you will also offer customer support, and you might offer services related to web hosting (such as website design). As for your firm’s advantages, they will vary with your own and your employee’s backgrounds, among other factors. Maybe you have actual experience running, say, a small boutique. This gives you an advantage in understanding the needs of this kind of business, which may assist you in hosting websites for small boutiques. Or maybe you have a lot of experience explaining technical details to the less technologically savvy in a way that they can understand.

Key Parts of a Business Plan: The Market

This brings us to the third section of your business plan: the market. It might also be one of the most comprehensive. Yes, you need to do research (and maybe some soul searching) when you write the section about your enterprise, but you really need to dig when you work on this section. A thorough version encompasses seven parts: the industry; market size and rate of growth; target market; the competition; sales approach; pricing policy; and promotion and advertising. Some of these sub-sections may contain only a paragraph or two; you might find that putting the information from certain sections into a graphical format (such as a chart or a table) helps you think about it better than writing lots of text.

When writing about the industry, you’ll need to do significant research to get a good overview. What are the major challenges that face web hosts today? How much does it cost to get into the business? How much does it cost to serve customers? What keeps the industry a going concern? How much turnover is there? Finding the answers to these questions will get you off to a good start.

Discussing the market size and rate of growth naturally follows from the previous topic. How big is the web hosting business? How much money was made in the business last year? Two years ago? How much will be made in the next couple of years? How many people will need someone to host their websites? These are the kinds of questions that this section deals with.

Next, and perhaps most importantly, you must consider your target market. This is the specific segment of people looking for web hosting that you hope to serve. Do you hope to serve businesses in a specific geographic region? Podcasters? Online auction runners? Not-for-profits? Whatever segment or segments you serve, you need to know what they want and need, how to fill those needs, and—for the future security of your business—what the trends are for your target market’s future behavior (i.e. how their needs will change, and what they’re likely to do about it).

The Market, Continued

Now we come to another important subsection: the competition. Don’t pretend that you’re so special and unique nobody can compete with you. I used to make paper bead jewelry that looked so good, even an antique dealer mistook the beads for Murano glass. I displayed my work at art shows, and it was unique; no one else was making paper bead jewelry. So I had no competition, right? Wrong. Every other jewelry maker was my competition.

Likewise, every other web host who could fill similar needs is your competition. So you need to cover their key attributes in this subsection. Or, if it doesn’t make sense to look at specific web hosting companies as your competition, you might look at broad classes of web hosting companies—all firms that offer web hosting in a particular price range, for instance.

Next, you need to look at your sales approach. How are you going to reach your customers? Will your sales be conducted chiefly face to face, or (much more likely for web hosts) over the Internet? How much experience do you have with Internet sales? If you don’t have a clear idea of how you are going to reach your customers, guess what? You might not get any customers at all.

You may not have given much thought to your pricing policy, but you should. How and why did you pick the price level for your service? Is it higher, lower, or comparable to similar offerings on the market? Is there any particular risk to the business in having your prices at their current level? Or, on the contrary, is there some benefit to your price level? The point is, you shouldn’t just pick a number; you should know what it would take to turn a profit, and whether you can get enough business at that price point to stay in business.

Finally, we come to promotion and advertising. This covers any public relations, advertising campaigns, educational programs and other tools that you will use to drive demand of your service. Planning to get a booth at the local county fair and give out brochures about your web hosting service? That falls under this section. How about pay-per-click advertising through the search engines? Ditto. Radio ads? Sure. Visiting the local public school to give a presentation on building a website, then helping the students to set up their own—hosted on your server, of course? That counts too; even if you set the students up for free, their parents just might become paying customers.

That’s all I have room for in this part. Hopefully, it has given you a better idea of what you need to think about when starting your web hosting business. In the second part, I’ll tackle the final three sections of a business plan: operations, organization, and key risks/timeline. See you then!
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